2018 Mid-Term Management Plan: Progress and Prospects

2018 Mid-term Management Plan Progress and Prospects

May 12, 2017 Toshiaki Higashihara President & CEO Hitachi, Ltd.

1. 2018 Mid-term Management Plan 2. Progress in FY2016 3. Further Growth in Social Innovation Business 4. Strengthening the Management Base 5. Preparing for 2018

An Innovation Partner for the IoT Era Accelerate collaborative creation with customers through Advanced Social Innovation Business

Four Focus Business Domains

FY2015 FY2016 FY2017 FY2018 (Results) (Original plan*) (Results) (Forecasts) (Targets)

10,034.3 9,000.0 9,162.2 9,050.0 10,000.0 Revenues billion yen billion yen billion yen billion yen billion yen

ratio 6.3% 6.0% 6.4% 7.0% Over 8.0% Adjusted 634.8 540.0 587.3 630.0 Over 800.0 operating income billion yen billion yen billion yen billion yen billion yen

5.3% 5.0% 5.2% 6.4% Over 8.0% ratio 531.0 450.0 475.1 580.0 Over 800.0 EBIT billion yen billion yen billion yen billion yen billion yen

Net income attributable 172.1 200.0 231.2 300.0 Over 400.0 to Hitachi, Ltd. billion yen billion yen billion yen billion yen billion yen stockholders

FX rate U.S. Dollar 120 yen 110 yen 108 yen 110 yen 110 yen (Average) Euro 133 yen 120 yen 118 yen 115 yen 120 yen

Business reorganization for growth of Social Innovation Business

 Business Restructuring (One-time loss: approx. 96 billion yen) ・Closure, Reduction and Improvement of low profitability business Business (e.g. Communication products, Overseas Plant EPC*1) Structural [Operating income improved by approx. 40 billion yen YoY] Reforms  Impairment loss related to uranium enrichment business of GE-Hitachi Nuclear Energy: approx. 66 billion yen

 Reorganization Business Field Revenues*2 Date of reorganization Logistics Service (Hitachi Transport System) 680.4 May, 2016

Selection & Financial Service (Hitachi Capital) 365.3 October, 2016 Concentration Power Tools (Hitachi Koki) 141.6 March, 2017 of Businesses Semiconductor manufacturing / video communications April, 2017 equipment (Hitachi Kokusai Electric) 180.7 Agreement of share transfer Others (LCD Panel,etc.Manufacturing Equipment - Business / Security Service) 19.5 Total 1,387.5

Promoted empowerment of growing businesses

 Smooth progress in integration of Hitachi Rail Italy and continued Railway collaboration with Ansaldo STS  Rail business is planned to grow globally with CAGR over 10%

 Utilizing emerging technologies, such as block chain in Asia market Financial  Steady growth of SI business for financial sector in Japan

 Expanding the business of products and digital solutions through the Industrial customer channels in North America, obtained through Sullair acquisition

 Completed the development of standardized elevator for Asia and the Middle East Building  Business expansion by strengthening the sales and maintenance bases in Asia, the Middle East, and Europe  Developed and started trial operation of 5.2MW off-shore wind power Power generation system  Accelerated the expansion of wind power business in Japan and Asia

Established IoT platform to drive the Social Innovation Business

Launch of the Lumada IoT platform  One of the world’s most advanced IoT platforms Examples of cases  Development team comprised of top talent Distribution Logistics Call centers in the IoT field --- 270 members, mainly in the U.S.  Accumulated insights obtained through Collaborative Creation with customers Purchases Order receipt Productivity --- 203 cases per customer Rate up 15% up 10%+ up 27%  Insights incorporated into reusable software Railway Automotive Water Banks Manufacturing Construction --- Enhancing the solution core …  CLO* responsible for the use of IoT platform Continue expansion of cases through collaborative creation with customers appointed in each business

Lumada FY2016 FY2017 FY2018 Consider additional Business (Result) (Forecast) (Target) large-scale investment Revenues to increase revenue (billion yen) 900 950 1,050 and profit

Increase revenues and profits through growth of Social Innovation Business

*1 Adjusted operating income (ratio) *2 Net income attributable to Hitachi, Ltd. stockholders  Revenues Increase by M&A and etc.  Operating income (ratio)*1 *2 8.0％ ■Impacts of business reorganizations Net income  7.0％ (trillion yen) 6.6％ 10.0 6.4％ Operating 10 9.7 9.8 6.3％ 6.3％ 9.2 income 9.1 10.0 9 (billion yen) ratio 9.0 1000 6.0％(plan) 8 8.6 8.6 8.2 7 7.9 ■ Impacts of business reorganizations 6 800 641.3 634.8 630 604.7 587.3 Operating 5 income 620 4 500 500 530 530 540 3 413.8 400 2 300 Net 231.2 income 1 217.4 172.1 0 0 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 (Result) (Result) (Result) (Result) (Forecast) (Target) (Result) (Result) (Result) (Result) (Forecast) (Target)

Note: Figures shown for revenues and adjusted operating income from FY2013 to FY2017 reflect adjustments based on existing businesses in FY2018 (Results of Hitachi Transport Systems, Hitachi Capital, Hitachi Koki, Hitachi Kokusai Electric, Hitachi Maxell, the air conditioning business, and the thermal power generation business were excluded actual results from FY2013 to FY2017. The elimination among inter-company transactions are not reflected.)

Accelerate further growth by large scale investment

Further growth by additional Growth of existing business FY2018 Revenues (FY2018) ＋ investment and M&A ＝ 9.5 - 9.6 trillion yen 400 - 500 Billion yen 10 trillion yen

Large scale investment (M&A) 1.0 trillion yen

Overseas Further growth by additional Growth of existing business FY2018 Revenue (FY2018) ＋ investment and M&A ＝ Over 55% ratio 51% Up 4%+

© Hitachi, Ltd. 2017. All rights reserved. 11 3. Further Growth in Social Innovation Business  Further Strengthening Digital and Lumada  Strengthening the Front on a Global Basis  Growth strategies in Four Focus Business Fields

Opportunities for Hitachi’s Social Innovation Business are expanding

The United Nations has adopted Resolving the world's social challenges and “Sustainable Development Goals” (SDGs), providing innovative structures for society and promoted it through many global companies. and lives through Social Innovation Business

Society 5.0

Industrie 4.0

IoT

SDGs Market; US$12 Trillion Digital Market; US$1.29 Trillion (2020) (Predicted figures by 2030)*1 (CAGR 15.6%)*2

*1 BSDC “Better Business, Better World” *2 IDC “Worldwide Semiannual Internet of Things Spending Guide”

Growing Social Innovation Business, Driven by Lumada

Further strengthening Digital and Lumada End-to-end Integrated Solutions Open Ecosystems

Strengthening Global Front the Front Business Americas EMEA/CIS APAC China Japan on a Global Scale

Industry & Finance / Public Power / Energy Urban Growth Distribution / Water / Healthcare strategies in four Focused Business Fields

Further expansion of Digital Solutions Business by Enhancing Lumada Providing optimal solution based on the understanding of issues through co-creation with customers Customers (in various fields) End-to-end Co-Creation Co-Creation Integrated Issue Hypothesis Solutions PoC / PoV* Component/System O&M Analysis Formulation Modernization Proposal Delivery

Providing value rapidly to customers through co-creation with partners

Open Ecosystems ×

Typical Co-Creation Partners

Urban : Connected Vehicle Solutions

Expanding existing technical and marketing partnerships to an Innovation Partner through joint engagements on multiple co-innovation projects in the United States

Penske-Hitachi Co-innovation Concept Penske Corporation  Improving vehicle uptime, safety, and compliance Head Office Challenges  Helping keep customers well- - Bloomfield Hills, Michigan informed about their vehicles Description of main operations - Diversified, on-highway, transportation services Subsidiaries - Retail Automotive Co-innovation - Truck Leasing Operating Vehicles: 240,000 + Vehicle Data Big Data Analytics Service Locations: 1,000 + Operational Expertise Artificial Intelligence - Logistics - Professional Motorsports, etc.

Industry : Digital Solution for Quality Management

[Co-creation case with Daicel] Connecting image analysis data and manufacturing execution management systems (facilities data)

Issues  Enhancing quality on a global scale

Solution Connect image analysis systems and manufacturing execution management systems at Daicel’s Harima plant, to improve quality assurance efficiency, and hereafter develop for global sites

Trend monitoring and preventative Value / measures using image data Outcomes Preventing defects before they occur

Urban : Rail Maintenance in UK

Providing the trains that are needed when they are needed, in keeping with service requirements specified by the railway operating companies

 Challenges that come with an older railway Issues  Increasing the reliability and safety of railways

Solution

 Remote monitoring and next-generation maintenance based on analysis of unusual sensor data and type of fault  Extend the cycle of parts replacements and optimize the stock and supply chain

On-time, secure and comfortable operation, Value / * Outcomes enhancing QoL of users, and economic revitalization

Financial : Digital Settlements (FinTech)

Demonstrating secure financial services to create new cross-border settlement services

 Evolution of digital technologies and increasing security risks Issues  Ensuring the global competitiveness of financial institutions (increased efficiency, service development)

Solution Verification tests using frameworks for the development of FinTech services by Singapore authorities  Development of future FinTech services, including electronic checks Identify issues in the use of Value / Outcomes block chain technologies (in the future)

Healthcare : Hospital Management Support in China

Provide secure medical services by increasing efficiency of hospital operations/management utilizing Hitachi’s operational know-how, IT and medical devices

Local medical Diagnostic imaging  Improvement in the efficiency of hospital institution center management Issues  Improvement for the quality of medical treatment

Solution  Operational support at diagnostic imaging center (Provide Medical devices such as PET*1, MRI*2 and know-how)  Reduction of operational costs utilizing IT (e.g. Central purchasing) Hospital  Increase the number of patients in cooperation with local medical institutions

Local medical Value / Improvement of local healthcare quality institution Outcomes Increase in hospital profits

Accelerate global expansion of Social Innovation Business ●Establishment of global front ２０１６年度からの事業Business organization体制・Establish “global front”, management organization to accelerate global expansion of Customers Social Innovation Business (April 2017) ●Employment of human resources ・Employ human resources such as Global Front consultant/SE/maintenance personnel etc. (FY2016 results: domestic 1,000 staff, Overseas 1,000 staff) ●Training for human resources Platform ・Accelerate development of staff and increase global front staff by building global certification system ●Strengthening front function by M&A Product ・Business growth through M&As to strengthen front function Target: Customer channels/Maintenance sites/Product business, etc. © Hitachi, Ltd. 2017. All rights reserved. 21 3.4.2 Growth Measures (2) Strengthening the Front on a global scale

Business growth by empowering front line through investment Effects of Ansaldo STS acquisition Aims of Sullair acquisition

 Business collaboration proceeding  Entry to prospective North America smoothly as planned market and acquisition of Sullair's customer base and sales network  Acquired customers in global railway (US customers: 4,000) market  Enhance the line-up of products (Air-compressor, marking device)  Growing by adding products (rolling  Provide digital solutions, such as stock, equipment, signaling systems) optimized factory and SCM* and digital solutions on railway turn- renovation to Sullair’s customers key solutions as next step Investment track records in global front line empowerment Ansaldo STS (Italy) (March 2016) Entry to turn-key business and expansion of global businesses Kurt & Kurt (Turkey) (Announced Dec. 2016) Sales expansion for medical devices in Europe and the Middle East Sullair (US) (Announced April 2017) Acquisition of customer channel and business expansion in the U.S. Temple Lifts (UK) (Announced April 2017) Entry to lift maintenance business in Europe

Focus on four business fields, Consider Growth Strategies and Investments

Industry & Finance / Public Power / Energy Urban Distribution / Water / Healthcare

 Electric power  Plant optimization  QoL enhancement  Growth in keeping reforms (Japan) using digital (Urban / Mobility / Home with changes in technologies digitalization) technologies and  Distributed Power / markets (financial)

&Investment Renewable Energy  Rebuilding supply  Further growth of chains by digital product business  Support for “My-

technologies Number” Strategy Strategy

Power Industry/Distribution Urban solutions Systems for Nuclear Energy Water Rail Financial Sector Energy Solution Industrial Products Elevators/Escalators Systems for Public Automotive parts and Social Smart Life & Infrastructure Sector Eco-friendly Systems Healthcare

Hitachi’s Business Hitachi’s (Home Appliances) Defense Systems

Strengthen investment strategy toward the next stage of growth

Focusing investment and improving asset profitability are essential for the growth by Social Innovation Business

Role of Investment Strategy Division (established on April 2017)  Focused investment (M&A, capital expenditure, R&D, sales investment, etc.) on growing business fields  Re-design the balance sheet  Strengthen project finance

Business creation investment beyond the existing business field

Role of Future Investment Division (established on April 2017)  In charge of investment and business start-up to grow by social innovation, in addition to growth of individual business and associate business group  Aim at fast business start-ups, promoting open innovation with external institutes / ventures

[ Projects and Leaders ] Healthcare Infrastructure Robotics / AI Urban mobility Security informatics maintenance

Kaori Kashimura Seiichiro Nukui Asako Koike Masahiko Hasegawa Yuichiro Nakaya

Strengthening the management base to achieve business growth

Speed up  Accelerate decision making under Business Unit management system

Expand global  Investment to acquire sales channels and partners business  Empower global front line

 Identify low profitability businesses, and implement Increase business countermeasures profitability  Promote Hitachi Smart Transformation Project  Improve investment efficiency and ROA

 Make “strategic investments” and “investments Invest in growth toward future,” on a total scale of 1 trillion yen businesses  Formulate and execute strategies in each of four focus business fields

Improving business performance by Hitachi Smart Transformation Project

Hitachi Smart Transformation Project  CCC*1 FY2016 72.2 days → FY2018 70 days C/F improvement …Reduce lead time by sharing order receipt information between Front and manufacturing divisions  Gross Margin FY2016 26.0% → FY2018 Over 28.0% …Reduce costs of purchased items through cost design from the design and development stage *2 P/L  SG&A improvement FY2016 19.6% → FY2018 20% …Control an increase in SG&A, resulting from strengthening Front, through standardization of operations

Continue close collaborations with stakeholders inside and outside of the company

Horizon Project (Nuclear Power Project in UK)

 Activities going according to plan  Prospect the Final Investment Decision in 2019

Thermal Power Project in South Africa  Continue close collaboration with Mitsubishi Hitachi Power Systems toward project completion  Continue discussions with Mitsubishi Heavy Industries

Front drives growth in sales and earnings Front revenue ratio FY2016 38% → FY2018 40% (Target)

Front Revenues (billion yen): Adjusted operating income ratio: 3,521.3 → 4,000.0 8% (FY2018 target)

Industry & Finance / Public / Power / Energy Distribution / Water Urban Healthcare Revenues (billion yen) Revenues (billion yen) Revenues (billion yen) Revenues (billion yen)

1,460.0 1,320.0 1,238.6 1,083.8 495.7 590.0 703.0 770.0

FY2016 FY2018 FY2016 FY2018 FY2016 FY2018 FY2016 FY2018

Platform/ Revenues (billion yen): Adjusted operating income ratio: Products* 6,714.5 → 7,160.0 8% (FY2018 target)

Global business expansion

Europe China N. America  Railway  Elevators / escalators  Automotive parts  Nuclear energy  Healthcare  Industrial products  Energy  Construction machinery  Urban mobility

FY2016 Revenue FY2018 Revenue FY2016 Revenue FY2018 Revenue FY2016 Revenue FY2018 Revenue 0.97 trillion yen 1.15 trillion yen 0.93 trillion yen 1.1 trillion yen 1.14 trillion yen 1.46 trillion yen

Asia Overseas Revenue Ratio  Finance(FinTech)  Industrial products FY2016 (Result) FY2018 (Target) FY2016 Revenue FY2018 Revenue → 0.93 trillion yen 1.22 trillion yen 48% 55%

Note: Regions except for those which are listed above (including Japan): FY2016 5.18 trillion yen → FY2018 5.07 trillion yen © Hitachi, Ltd. 2017. All rights reserved. 32 5.2.1 Mid-term Management Plan Targets (1)

FY2016 Results FY2018 Targets

Front business expansion 38% 40% (Front revenue ratio)

Global business expansion 48% Over 55% (overseas revenue ratio)

Strengthening cash-generating capability 7.1% Over 9% (Operating cash flow margin*1)

Improving asset profitability (ROA*1,2) 3.3% Over 5%

*1 Manufacturing, Services and Others *2 ROA(Return on Asset) = [Net income] / [Total Asset (Average between the end of current fiscal year and the end of previous fiscal year)] x 100 © Hitachi, Ltd. 2017. All rights reserved. 33 5.2.2 Mid-term Management Plan Targets (2)

FY2015 FY2016 FY2017 FY2018 (Results) (Original plan*) (Results) (Forecasts) (Targets)

10,034.3 9,000.0 9,162.2 9,050.0 10,000.0 Revenues billion yen billion yen billion yen billion yen billion yen

ratio 6.3% 6.0% 6.4% 7.0% Over 8.0% Adjusted 634.8 540.0 587.3 630.0 Over 800.0 operating income billion yen billion yen billion yen billion yen billion yen

5.3% 5.0% 5.2% 6.4% Over 8.0% ratio 531.0 450.0 475.1 580.0 Over 800.0 EBIT billion yen billion yen billion yen billion yen billion yen

Net income attributable 172.1 200.0 231.2 300.0 Over 400.0 to Hitachi, Ltd. billion yen billion yen billion yen billion yen billion yen stockholders

FX rate U.S. Dollar 120 yen 110 yen 108 yen 110 yen 110 yen (Average) Euro 133 yen 120 yen 118 yen 115 yen 120 yen

Certain statements found in this document may constitute “forward-looking statements” as defined in the U.S. Private Securities Litigation Reform Act of 1995. Such “forward-looking statements” reflect management’s current views with respect to certain future events and financial performance and include any statement that does not directly relate to any historical or current fact. Words such as “anticipate,” “believe,” “expect,” “estimate,” “forecast,” “intend,” “plan,” “project” and similar expressions which indicate future events and trends may identify “forward-looking statements.” Such statements are based on currently available information and are subject to various risks and uncertainties that could cause actual results to differ materially from those projected or implied in the “forward-looking statements” and from historical trends. Certain “forward-looking statements” are based upon current assumptions of future events which may not prove to be accurate. Undue reliance should not be placed on “forward-looking statements,” as such statements speak only as of the date of this document.

Factors that could cause actual results to differ materially from those projected or implied in any “forward-looking statement” and from historical trends include, but are not limited to:

 economic conditions, including consumer spending and plant and equipment investment in Hitachi’s major markets, particularly Japan, Asia, the United States and Europe, as well as levels of demand in the major industrial sectors Hitachi serves;  exchange rate fluctuations of the yen against other currencies in which Hitachi makes significant sales or in which Hitachi’s assets and liabilities are denominated, particularly against the U.S. dollar and the euro;  uncertainty as to Hitachi’s ability to access, or access on favorable terms, liquidity or long-term financing;  uncertainty as to general market price levels for equity securities, declines in which may require Hitachi to write down equity securities that it holds;  fluctuations in the price of raw materials including, without limitation, petroleum and other materials, such as copper, steel, aluminum, synthetic resins, rare metals and rare-earth minerals, or shortages of materials, parts and components;  the possibility of cost fluctuations during the lifetime of, or cancellation of, long-term contracts for which Hitachi uses the percentage-of-completion method to recognize revenue from sales;  credit conditions of Hitachi’s customers and suppliers;  fluctuations in product demand and industry capacity;  uncertainty as to Hitachi’s ability to implement measures to reduce the potential negative impact of fluctuations in product demand, exchange rates and/or price of raw materials or shortages of materials, parts and components;  uncertainty as to Hitachi’s ability to continue to develop and market products that incorporate new technologies on a timely and cost-effective basis and to achieve market acceptance for such products;  increased commoditization of and intensifying price competition for products;  uncertainty as to Hitachi’s ability to achieve the anticipated benefits of its strategy to strengthen its Social Innovation Business;  uncertainty as to the success of acquisitions of other companies, joint ventures and strategic alliances and the possibility of incurring related expenses;  uncertainty as to the success of restructuring efforts to improve management efficiency by divesting or otherwise exiting underperforming businesses and to strengthen competitiveness;  the potential for significant losses on Hitachi’s investments in equity-method associates and joint ventures;  general socioeconomic and political conditions and the regulatory and trade environment of countries where Hitachi conducts business, particularly Japan, Asia, the United States and Europe, including, without limitation, direct or indirect restrictions by other nations on imports and differences in commercial and business customs including, without limitation, contract terms and conditions and labor relations;  uncertainty as to the success of cost structure overhaul;  uncertainty as to Hitachi’s ability to attract and retain skilled personnel;  uncertainty as to Hitachi’s access to, or ability to protect, certain intellectual property rights;  uncertainty as to the outcome of litigation, regulatory investigations and other legal proceedings of which the Company, its subsidiaries or its equity-method associates and joint ventures have become or may become parties;  the possibility of incurring expenses resulting from any defects in products or services of Hitachi;  the possibility of disruption of Hitachi’s operations by natural disasters such as earthquakes and tsunamis, the spread of infectious diseases, and geopolitical and social instability such as terrorism and conflict;  uncertainty as to Hitachi’s ability to maintain the integrity of its information systems, as well as Hitachi’s ability to protect its confidential information or that of its customers; and  uncertainty as to the accuracy of key assumptions Hitachi uses to evaluate its employee benefit-related costs.

The factors listed above are not all-inclusive and are in addition to other factors contained in other materials published by Hitachi.